Conservative ideologues aren’t bankrupting Rhode Island

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In his New York Times column yesterday, Joe Nocera laid the blame for the fiscal catastrophe in Woonsocket, Rhode Island on Jon Brien, a state legislator who blocked a bill that would have plugged a massive hole in the town’s budget by raising property taxes on its residents by 13.8 percent. Nocera argued that Brien took these actions to shrink the local government because he’s a conservative ideologue, further highlighted by the fact that Brien is also on the national board of ALEC, an advocacy group that pushes for smaller government.

Maybe it’s true that Brien was primarily motivated by ideology, but if Nocera had taken even a cursory glance at the financial statement for Woonsocket, he would see Brien’s position has some merit. Spending on retiree benefits and municipal debt are drowning Woonsocket. The city is in a death spiral.

Let’s start with what Nocera got right: Municipal pensions, the traditional whipping boys for conservative critics of out-of-control government spending, are not Woonsocket’s big problem. The town’s pensions are actually 60 percent-to-90 percent funded, pretty good by Rhode Island standards (page 77). Maintenance of the pension funds required a contribution of only 2.2 percent of the 2011 budget.

The real deficit sinkhole for the town lies in its Other Post Employment Benefits (OPEBs) and expenses for its debt service. OPEBs, or health and dental benefits provided to city retirees, cost the city $4.5 million, or 3.2 percent of the budget. That amounts to $10,135 for each of Woonsocket’s 450 retirees. Debt service cost the city $16.9 million in 2011, or 12.2 percent of its $139 million annual budget. Those costs will jump to $21 million for 2012 and remain at that level through 2016 (page 47).

Add it all up, and total pension expenses, OPEBs and debt service consumed 17.6 percent of the town’s budget last year and will consume 20.4 percent of its 2012 budget. That means less than 80 percent of the budget goes to tangible public services for Woonsocket residents. On top of all that, the town’s fiscal situation was dealt another blow late last year when it was discovered that an unqualified school budget administrator lost track of $10 million in school funds.

I can see how Brien makes an easy target: In addition to his affiliation with a polarizing group like ALEC, he also told Nocera that he didn’t know how bad Woonsocket’s pension problems are. But Nocera glosses over the biggest issue in this story: In 2010 the Rhode Island General Assembly passed legislation that protects municipal bondholders by exempting them from creditor writedowns in bankruptcy proceedings. Rhode Island is the only state in the U.S. to prohibit haircuts for bondholders. The General Assembly’s actions have not been challenged yet in a federal bankruptcy court, which traditionally treats creditors on an equal basis.

Because the state’s General Assembly has exempted bondholders from renegotiating their terms, about 15 percent of Woonsocket’s budget cannot be adjusted. The city runs a pretty lean government already. From Julie Steiny at Education News (emphasis mine):

For much of her tenure ending in 2009, the 7-term, ex-Mayor Susan Menard delivered on her promise not to raise taxes. Rhode Island is a super-high-tax state, so this was much appreciated. The headquarters of the big drugstore chain CVS was expanding in her backyard, along with other blossoms of economic development. So increasing revenues worked in her favor.

But she also kept taxes down by cutting substantially among her city departments, including fire and police.

And for the decade ending in the mid-2000s, she level-funded the School Department, despite its growing expenses. School employees accepted contract concessions including a 20 percent co-pay on their medical insurance and what is considered in public-employee circles a massive deductible, $500.

Woonsocket’s per-pupil spending is 5th from the lowest. This is a bit of a feat when fully 21 percent of its student population need special education – the State average is 16 percent.

Two years ago, the City Council hired auditors to sharpen their scalpels and tackle the School Department budget. But they reported finding little fat. Middle-school sports were already gone, so they offered up guidance counselors, school nurses and other student supports. But even the auditors, born fiscal conservatives, recommended the City reinstate all-day kindergarten. Not that they did.

Nocera’s claim that ALEC has taken over Woonsocket is far-fetched. It’s Rhode Island’s Democratic General Assembly that has sentenced Woonsocket and other Rhode Island towns to death by taking debt restructurings out of the equation. Democrats thought they were protecting their state’s credit rating by outlawing haircuts on bondholders. But instead they have saddled their citizens with a big burden of debt.

The underlying story is indeed about ALEC means being the solution forced on Woonsocket. Yes, the state is crummy, the General Assembly has the power not the Governor. We re-elect the same reps over and over again because often they run unopposed. In Woonsocket ( the last election) one hapless opponent of Ms. Baldelli-Hunt did not realize he had to had to throw large free dinners to meet the voters. He was a fairly new resident and a doctor. All our delegation are ALEC members because we are easy pickings. Few read newspapers here unless they are free and a snippet of Fox News is all they know for the most part about anything beyond Woonsocket.

The Woonsocket delegation has thwarted state legislation to raise a fifth quarter property tax to start righting our sinking ship. They dragged it out for months because it is alleged Ms. Baldelli-Hunt wants Mayor Fontaines job. (though I can’t see why) They want to force out the mayor and John Ward, city council president. John is a competent guy as he is the financial manager of Lincoln RI a very well-heeled RI town.http://valleybreeze.com/2012/06/13/nsbw/ city-s-future-uncertain-as-tax-deal-fail s

The state is run by goons, and now the goons will be taking over Woonsocket. And you know what, most people don’t care. The one thing that will get them angry is not the closing of the library- but the senior center.

Mr Brien has aspirations for a congressional seat in the future. He is ALEC’s boy and I am sure he will be well funded.

Woonsocket is lucky to have Rep Brien as their representative. If the rest of the Democrats in the House were more like him this state wouldn’t be in the financial ruin it is in. Many citizens in Woonsocket are a paycheck from the curb, raisng their taxes 13% would for surely put them there. If I were a Woonsocket taxpayer I would thank my lucky stars that they pulled that tax increase. If Woonsocket or any other city or town can’t manage their finances properly they deserve a budget commission or receiver.

Sadly the previous commentator does not realize that while we have been saved the 13% for now,our property taxes will still be going up. On the block is our 42% homestead exemption which if the reader was aware at all, is now being reduced as she/he crows. We will STILL be paying more in taxes. One of the reasons we are in this fix is this year the state summarily withdrew 4 million dollars in school aid and reduced aid as well to towns and cities.

Our less than heroic non-leaders sought to enhance their standing while dragging out the general assembly hearings- while knowing all the while (unless they were totally stupid) that Woonsocket citizens were still going to be on the hook for higher taxes. That is cynicism at its worst.They had no plan of their own-they did not lead-they foot dragged.

Uniformed citizens have been fed a steady diet of the ever more thoughtless and trite-”let’s shrink the government”.They really have no clue what it really means, It does not mean widgets- it means people. Talk to a person who helps you in city hall- she might be a homeowner with a mortgage- she could lose her home if she loses her job in a “shrinking city government”. Another foreclosure in Woonsocket.

Our state even though it has a high unemployment rate is ranked 18th highest in wealth in the country-far from poor- yet we are one of the fastest growing in income inequality in New England. Despite this AND knowing the plight of Woonsocket, Baldelli-Hunt and Jon Brien voted against raising the tax on the income of citizens making over 250K, fromm 5.99% to 9.99% which it was in 1979.This is criminal. The tired refrain- oh those are the job creators-they will leave- there is no substantial evidence of that in ANY study. Really- give up those killer waterfront estates in East Greenwich and Barrinton to live in low tax havens in South Dakota! Get real! Actually if the commentator looks back to the 50′s 60′s and 70′s, tax rates on high income earners were up tp 90% yet those were high prosperity years for the middle class.

They get their cues from ALEC. (CVS is a member)Our legislators should be like Ceasars wife- “above suspiscion”. Why did this right wing orgnization pay $800 for Brien’s plane ticket and $400 in expenses. Because they love Woonsocket?

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I’m Cate Long and I write about the retail fixed income markets including municipal bonds. My primary interest is creating tools and systems to help retail investors understand bond markets. I’ve worked for a number of years with industry standards organizations, regulators and Congress to help craft a more transparent and fair framework for investors to participate in the fixed income markets. I'm a guest contributor to Reuters.com. Any opinions expressed are mine alone.